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Global economic crisis hits Indian overseas investments

Last Updated: Tuesday, August 18, 2009 - 11:48

New York: On an overseas acquisition
spree over the past few years, Indian companies have suddenly
become wary of making investments in foreign companies as a
result of the current global economic crisis, a Columbia
University report said on Monday.

The report "Indian FDI falls in global economic crisis:
Indian multinationals tread cautiously" by the Columbia Law
School and The Earth Institute at the Columbia University said
after growing faster than other emerging markets for some
time, Indian investments abroad declined in 2008 and will
decline further in 2009 in an uneven pattern.

"The global economic crisis has made Indian firms wary of
further expansion abroad. Consequently, actual Indian FDI
outflows, which rose to a historic level of nearly USD 18
billion in 2007, fell by 6 percent in 2008 to under USD 17
billion. This is the first absolute decline in OFDI since
1999," the report said.

Noting that the trend in the Indian overseas acquisitions
in January–June 2009 compared to the corresponding period in
2008 confirms the decline, the report said between these two
periods the value of such acquisitions fell by 65 percent,
from USD 8 billion to under USD 3 billion and their number
fell from 140 to 28.

The fall in Indian OFDI (Overseas FDI) is in line with
the worldwide decline of OFDI to 15 percent in 2008,
although, it contrasts with China’s doubling of its OFDI in
2008. The contraction in Indian OFDI is continuing in 2009
falling to USD 4.7 billion in the first quarter of the current
year, a 14 per cent decline over the same quarter last year.

The global and domestic slowdown and the credit crunch in
both Indian and overseas markets have been the reasons for
this break in foreign investment by Indian companies.

Although, the Indian banking sector did not suffer as
much as the banks in some major economies, suffer it did and,
therefore, adopted a cautious lending policy in 2008. This in
turn led to several domestic and overseas projects being
postponed, it said.

In addition, the global financial crisis had a negative
impact on other financial sub-sectors like the Indian equity,
money and foreign-exchange markets.

The sudden depreciation of the Indian rupee against the
US dollar in 2008 also led to heavy losses for many
export-oriented Indian companies that had acquired long-term
forex derivatives, the report said.

A recovery in the Indian OFDI will depend on the revival
of global and domestic growth, improvements in corporate
profitability and easing of financing from banks and the
equity market.

The first quarter of 2009 registered stronger GDP growth
in India than expected, even though global growth went down.
If domestic growth turns out to be unsustainable, however,
OFDI may not recover, the report concluded.

Bureau Report

First Published: Tuesday, August 18, 2009 - 11:48
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